1. Problems and Applications Q1 Consider each of the following situations involv
ID: 1122289 • Letter: 1
Question
1. Problems and Applications Q1 Consider each of the following situations involving asymmetric information. Landlords require tenants to pay security deposits." Who are the principals and who are the agents? O Landlords are the principals and tenants are the agents. O Tenants are the principals and landlords are the agents. "Firms compensate top executives with options to buy company stock at a given price in the future." Who are the principals and who are the agents? 0 Firms stockholders are the principals and the executives are the agents. O The executives are the principals and firms' stockholders are the agents.Explanation / Answer
Landlords require tenants to pay security deposits. In this situation Landlords are the principals and tenants are the agents.
Firms compensate top executives with options to buy company stock at a given price in the future. In this situation Firm's stockholders are the principals and top executives are the agents.
Car insurance companies offer discounts to customers whi install antitheft devices in their cars.In this situation insurance companies are the principals and customers are the agents.
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